Resources

Market News

July 16, 2018Turning Trump's Trade War Into a Tool to Fight Climate Change

As the Trump administration's trade war heats up, a group of experts is proposing a new way to counter protectionism---and prod the United States back into climate action at the same time.

In a commentary in the journal Nature, the team of trade and climate policy experts called for a global punitive tax on imports based on their carbon footprint.

It's an idea that was invented to address the problem of "free riders"---nations that refuse to join the global practice of putting a price on carbon, such as a tax or a cap-and-trade market mechanism. To avoid giving the free riders a competitive advantage in world trade, the carbon price would be collected on their products as an import tariff at the border.

The border tax would "level the emissions playing field by imposing the same economic burden on domestic and external manufacturers," the team writes in the article, published online Monday.

As the Trump administration upends trade relationships with allies while renouncing the Paris climate agreement, the authors contend that this kind of a tax could be more appealing than ever.

"It's politically seductive for policymakers," said Michael Mehling, an MIT climate and trade expert and lead author of the commentary.

Carbon-based tariffs---known as border carbon adjustments, or BCAs---used to be easy to dismiss out of fear that it would upend the delicate balances of international trade, Mehling said.

Now, Mehling says, the tit-for-tat tariffs slapped by the U.S. on China as well as on close allies, and vice versa, presents a whole new ballgame.

"The relationship is soured," he said. "Now you're thinking about how best to hit back."

Who's Actually Considering It?

Just last year, French President Emmanuel Macron called BCAs "indispensable." In Canada, Environment Minister Catherine McKenna has said they warrant a closer look. Mexico mentions them in their commitments under the Paris Agreement.

Democratic lawmakers in the United States added language calling for BCAs into a series of climate bills through the early 2000s. They almost succeeded when the Waxman-Markey cap-and-trade bill passed the House in 2009, but it died in the Senate.

Internationally, the idea worried developing nations, Mehling said, as it could hold back their emerging economies. But in the years since, those countries---many of which are feeling the immediate impacts of climate change---have stepped up their climate commitments while seeing others, like the U.S., walk theirs back. "The chess pieces have literally changed sides," Mehling said.

Making BCAs Work Isn't Simple

Though the authors argue that now is a "perfect opportunity" to implement a BCA, actually pulling it off would be complicated.

"You don't know how politically feasible this is already," said Harvard economist Martin Weitzman. "Now you're somehow marrying this idea of border carbon adjustments on top of highly uncertain Trump tariffs? It seems like a poison mix somehow."

Putting those complicated relationships aside, Weitzman also pointed to the challenges around implementing this kind of tax.

"If you take something like steel, there are many different ways to make steel, and they have quite different carbon footprints," he said. "It isn't clear how to actually make this calculation of what the carbon tax should be."

Mehling said despite the concerns of some about rocking the boat by introducing BCAs, there's a good argument that they might help tackle the two sticky issues of the trade war and climate laggards at once.

"It's not going to go away," he said. "If anything, now is a unique confluence of things that makes it a good a time as any."